Monday, December 01, 2008

SUMMARY:- Late upside move takes market positive as sellers remain sidelined.- NASDAQ lagging on this rebound.- LIBOR continues its rise.- This week we see if the sellers return.

Upside bias takes over again.

Stocks started weak with all futures lower and indeed the indices starting the day lower. The Indian bombings seemed to have a delayed impact though they were known on Wednesday. It didn't help that LIBOR rates continued their climb (overnight 1.16% versus 0.99%; 1-month 1.90% versus 1.43%; 3-month 2.22% versus 2.18%) as investors ran to US treasuries and the dollar rebounded sharply from its sharp correction (1.2690 versus 1.2896 Wednesday).

The indices fell back, but SP500 and DJ30 held the 18 day EMA. NASDAQ was the question mark as it lagged noticeably, undercutting its 18 day EMA. The indices traded on both sides of the flat line all day with DJ30 positive, SP500 hugging the flat line, and NASDAQ negative. Even with the indices struggling at the 18 day EMA after four upside sessions, however, the sellers stayed home. In the last hour DJ30 moved from up 30 points to close up 102. DJ30 pulled SP500 positive almost 1%, and it even managed to drag NASDAQ back from the red. NASDAQ 100 did not make it, closing down 0.62%. Techs lagged all day long, the anchor chain on this move.

Indeed, techs will be worth watching closely as the new week starts. They are a growth index and if this rally is going to last it will need some growth stocks to join in. It will also need the financials to continue higher, but when you look at the charts of major financial institutions they are at very critical points. After 4 days of rebounding they are just below the 18 day EMA resistance. Whether SP500 can continue its move depends upon the financials doing likewise, and that means breaking their downtrends.

All of this leads up to an important coming week as the indices try to put in a follow through session to the rebound started two Fridays back. The sellers have not come back in on this rebound and that is giving many on the financial shows confidence to call yet another bottom. The indices are certainly at a critical point after the run higher took them just through the 18 day EMA. A bit of a pause would do the upside some good, i.e. fading to the 18 day EMA over 2 to 3 sessions. If the sellers cannot push back into the equation then this upside has more legs and we will add to our upside positions as well as take some more upside on the indices. AAPL and RIMM are setting up for another upside break, and if they take off sharply that is a good indication for the rest of the market as they will help lead NASDAQ higher.

THE MARKET

MARKET SENTIMENT

VIX: 55.28; +0.36VXN: 56.05; +0.79VXO: 59.81; +1.24

Put/Call Ratio (CBOE): 0.88; +0.13

Bulls versus Bears:

This is a reading of the number of bullish investment advisors versus bearish advisors. The reason you look at this is that it gives you an idea of how bullish investors are. If they are too bullish then everyone is in the market and it is heading for a top: if everyone wants to be in the market then all the money is in and there is no more new cash to drive it higher. On the other side of the spectrum if there are a lot of bears then there is a lot of cash on the sideline, and as the market rallies it drags that cash in as the bears give in. That cash provides the market the fuel to move higher. If bears are low it is the same as a lot of bulls: everyone is in and the market doesn't have the cash to drive it higher.

Bulls: 30.9%. Modest decline from 31.9% after bullish sentiment rose steadily off the 5 year low of 21.3% hit to start November. Remains below the 35% considered bullish for the market. It was at this level in early October just as the market started to dive lower. This move down showed us the largest single week drop we have ever seen, falling from 33.7% to 25.3%. Hit 40.7% on the high during the rally off the July 2008 lows. 30.9% was the March low. In March the indicator did its job with the dive below 35% and the crossover with the bears. A move into the lower 40's is a decline of significance. A move to 35% is a bullish indicator. This is smashing that. For reference it bottomed in the summer 2006, the last major round of selling ahead of this 2007 top, near 36%, and 35% is considered bullish.

Bears: 43.6%. Bears continue to decline, dipping from 46.1% last week and 48.3% the week before. Still falling form the 5 year high at 54.4% hit the last week of October. Well above the 35% threshold so still a bullish indication. This move over 50 takes it to the highest since 1995. Extreme negative sentiment. 35% is the level that historically indicates excessive pessimism. As with the bulls the jump in bears did its job after hitting 44.7% in the third week of March. Bearishness peaked at 37.4% in September 2007. It topped the June 2006 peak (36%) on that run. That June peak eclipsed the March 2006 high (33%) and well above the 2005 highs that spawned new rallies (30% in May 2005, 29.2% in October 2005). This is a huge turn, unlike any seen in recent history.

NASDAQ

Stats: +3.47 points (+0.23%) to close at 1535.57Volume: 798.972M (-59.53%)

Up Volume: 420.7M (-1.419B) Down Volume: 345.895M (+221.6M)

A/D and Hi/Lo: Advancers led 1.96 to 1Previous Session: Advancers led 3.82 to 1

Managed to hold its gain just over the 18 day EMA resistance. NASDAQ 100 is showing a doji right below that level, but if AAPL follows through on its improving pattern it will help the large cap techs hold the line.

The clear market leader posting its fifth upside session. It has cleared the 18 day EMA but will likely need a test before it moves higher, especially if its financial components fade back from their rally to near resistance.

Stats: +102.43 points (+1.17%) to close at 8829.04VOLUME: 155M shares Friday versus 279M shares Wednesday. Even with the half day this was a low volume session.

NASDAQ: Closed at 1535.57Resistance:1542 is the early October 2008 low1565 is the second low in October 20081620 from the early 2001 low1644 from August 2003The 50 day EMA at 17151752 from 20041782 from August 20041882 from October 20031900 is the gap down point in October; from August 20041912 from April 20051947 is the point where the market gapped down from in October 20081984 is the late September low2070 from September 2008

Support:The 18 day EMA at 15261521 is the late 2002 peak following the bounce off the bear market low1499.21 is the 2008 closing low1493 is the October 2008 low. Key low.The 10 day EMA is 14911428 is the November 2008 low1387 is the 2001 low1295 is the November 2008 low1253 is the March 2003 low on the test of the rally off the 2002 bear market low1108 is the 2002 low

S&P 500: Closed at 896.24Resistance:899 is the early October closing low965 is the 2003 consolidation lowThe 50 day EMA at 967995 from June 2003 consolidation peak1065 is the Q4 2003 level that SP500 started the run to 2007 after the first run in the recovery.1075 from August 2004.The 90 day SMA at 11051106 is the late September low1133.50 is the mid-September 2008 low1200 is the July 2008 intraday low1244 is an August 2005 peak

Support:889 is an interim 2002 peakThe 18 day EMA at 876866 is the second October 2008 lowThe 10 day EMA at 862853 is the July 2002 low848 is the October 2008 closing low839 is the early October 2008 low818 is the November 2008 low800 is the March 2003 post bottom low768 is the 2002 bear market low741 is the November 2008 low650 on the top and 625 on the bottom of a 7 month range in 1996475 from 1994 where the market moved laterally for the entire year.

Dow: Closed at 8829.04Resistance:8985 is the closing low in the mid-2003 consolidation9200 is the July peak in the 2003 consolidationThe 50 day EMA at 92179323 From June 2003 peak9575 from September 2003, May 20019814 from August 20049937 from May 2004 low10,100 to 10,000 10,127 is an April 2005 lowThe 90 day SMA at 10,20610,215 from Q4 200510,365 is the new 2008 low10,459 is a September 2008 low10,827 is the July 2008 intraday low

Support:8626 from December 2002The 18 day EMA at 85738521 is an interim high in March 2003 after the March 2003 low8451 is the early October closing low. Key level to watch.The 10 day EMA at 84918197 was the second October 2008 low8175 is the October 2008 closing low. Key level to watch.7965 is the November 2008 intraday low.7882 is the early October 2008 low. Key level to watch.7702 is the July 2002 low7524 is the March 2002 low to test the move off the October 2002 low7449 is the November 2008 low7282 is the October 2002 low

Economic Calendar

These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.